I found the easiest way was to disable offline
files through the domain group policy. However since its only one
machine thats got the problem I'd say its probably best to disable
offline files through the local group policy:

1. Start > Run > 'mmc'
2. File > Add/Remove Snap-in > Add > Group Policy > OK.
3. In the GP window; Comp Config > Admin Template > Network > Offline
Files.
Disable 'Allow or Disable use of offline files feature'

You may also want to disable 'Do not auto make redirected folders...'
in User Config > Admin Temp > Network > Offline Files.